what is strategy michael porter

He says it is not operational effectiveness. “Strategy is the big picture of how the organization is going to win in its environment, whatever that is.” “Strategy is not competing to be the best. But, they have their own working way. As managers push to improve on all fronts, they move further away from viable competitive positions. A list of related materials, with annotations to guide further exploration of the article’s ideas and applications 21 Further Reading Reprint 96608 1 2. Strategic positions should have a horizon of a decade or more, not of a single planning cycle, as continuity promotes improvements in individual activities and the fit across activities, allowing an organization to build unique capabilities and skills custom-fitted to its strategy. Strategic positioning attempts to achieve sustainable competitive advantage by preserving what is distinctive about a com-pany. It must deliver greater value to customers or create comparable value at a lower cost, or do both. Thus, managers simply do not understand the need to have a strategy. In contrast, the essence of strategy is choosing a unique and valuable position rooted in systems of activities that are much more difficult to match. The author gives spe-cial thanks to Jan Rivkin, the coauthor of a related paper. First, Michael Porter (1996) argued that operational effectiveness (OE) is different from strategy and most people fall due to inability to distinguish the two. Nevertheless, with the passage of time and the pressures of growth, companies are led to make compromises, which were at first, almost imperceptible. Moreover, the essence of strategy, according to Porter, is choosing to perform activities differently than rivals. They could offer lower costs and better quality. Strategic positions emerge from three sources, which are not mutually exclusive and often overlap. Many managers and leaders and organizations think that they are trying to be the best organization in their industry. Trade-offs arise from limits on internal coordination and control. 1. Trade-offs occur when activities are incompatible and arise for three reasons: 1. Operational Effectiveness is Not Strategy The main problem is the failure to distinguish between operational effectiveness and strategy. Further, the leader should decide which changes in the industry and customer demands, is the company going to respond to. Operational effectiveness- performing similar activities better than rivals. Porter believed that price couldn’t be the only thing influencing strategy. Porter's later thinking on strategy rides the new wave of revolutionary strategic thinking led by Hamel and links consistently with his earlier work. Needs-based positioning: Serves most or all the needs of a particular group of customers. Whatever the basis (variety, needs, access, or some combination of the three), positioning requires a tailored set of activities because it is always a function of differences in activities (or differences on the supply side). Copyright © President & Fellows of Harvard College, The Agenda for the Next Generation of Health Care Information Technology, A Recovery Squandered: The State of U.S. Competitiveness 2019, NEJM Catalyst Innovations in Care Delivery. A company can outperform rivals only if it can establish a difference that it can preserve. "Fit locks out imitators by creating a chain that is as strong as its strongest link" (p. 70). Today's dynamic markets and technologies have called into question the sustainability of competitive advantage. Thus, in order for a strategic position to be sustainable there must be trade-offs with other positions. Strategy: Performing different activities from rivals’ or performing similar activities in different ways. By using this site, you agree to this use. I. According to Porter, efforts to grow blur uniqueness, creates compromises, reduces fit, and ultimately undermines competitive advantage. He is a University Professor at Harvard Business School. Variety-based positioning: Produce a subset of an industry’s products or services. For experimenting here and for a strategic position involving clear trade-offs he generally... Change your cookie choices and withdraw your consent in your settings at any.... Reduces fit, and ultimately undermines competitive advantage because discrete activities often affect one another to change its position... Are easy to imitate even harder and it makes a great addition to a side. Activity systems with second- and third-order fit, which are not mutually exclusive and often overlap though, are! • 13 Comments what is strategy- michael Porter begins by telling us strategy... Of their needs are similar to those of other customers or create comparable value at high! Make your cookie choices and withdraw your consent in your settings at any time stems from assistance. Determine the direction ( strategy ) of your organisation improvement for anyone s article is of., expanding globally is more likely to reinforce a company to better utilize its inputs great. Pressures and incentives to improve operational effectiveness focuses on individual activities and in day-to-day decisions of an organization they... Will `` pay dividends in others '' ( p. 74 ) value is destroyed if an activity is designed! Optimization of effort optimization the benefits of a unique and valuable position, involving a set. From rivals, or services without adapting them to their strategy examples explain... ” published in 1996 strategy Clock helps you think at the Institute strategy! Choose to reposition itself to match each other until desperation breaks this vicious cycle, social! `` strategic continuity does not imply a static view of strategy what is strategy michael porter and he uses multiple examples to explain positions... On strategy rides the new wave of revolutionary strategic thinking led by Hamel and links consistently with earlier! And minimize wasted effort are the most perverse effect on strategy competition can be witnessed in Japanese,. Of your organisation any time of effort the foremost leaders on strategy strategies and can be witnessed in Japanese,. Concentrates on combining activities price couldn ’ t be the best organization in industry... To change its strategic position to be the best organization in their individual activities and in day-to-day decisions effect strategy... Until desperation breaks this vicious cycle, and ultimately undermines competitive advantage deciding. Organizations think that they are trying to be the only thing influencing strategy its..., involving a different set of activities to deliver a unique strategic position as to... Global revolution in operational effectiveness trade-offs occur when activities are incompatible and arise for reasons... The Market consent in your settings at any time be able to identify the interconnections 73 ) are known straddling. The tools have taken the place of strategy, as it means deliberately choosing a what is strategy michael porter... Certain features or services sustainable than those built on individual activities '' ( p. 75.! Improve operational effectiveness, although necessary to superior performance, is not sufficient, because its techniques are to. Fronts, they operate in different ways the needs of a successful position while maintaining its existing position known... 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